Recent amendments to Taiwan’s Certified Public Accountants Law will make the practice environment healthier, enhance the quality of CPA services and strengthen the accounting profession’s self-regulation. PricewaterhouseCoopers Taiwan senior manager of markets and strategies Damian Gilhawley explains.
Last December, the Taiwanese government legislature passed long-delayed amendments to the nation’s Certified Public Accountants (CPA) Law. The revised legislation marks a new milestone for Taiwan’s accounting profession as it will bring about several changes that may kick start a consolidation trend in the profession.
Many sections of Taiwan’s CPA law had not been amended for 30 years, so several provisions were out of date and at variance with international trends. To address concerns that the outdated law might affect the development of the accounting profession, the Financial Supervisory Commission (FSC), Taiwan’s financial watchdog, proposed comprehensive amendments in 2005, which were eventually passed and promulgated in December 2007.
The key changes are the diversification of organisational types and the clarification of CPA firm liability.
Structural reform The revised CPA law includes a new article that allows for an accounting corporation to be recognised as a legal person, which should consist of more than three registered CPAs, and only the shareholders of the corporation are allowed to practice business on its behalf. Currently, the Big Four and mid-tier firms are organised as partnerships only.
In addition, to solve the uncertain status of joint accounting firms and clarify who actually bears liability at such firms, the revised law allows joint accounting firms to become organised as partnerships, and has added a new category of firm called ‘cosignatory CPA firms’ to stay in line with the actual state of practice in the field of accounting.
The revised law requires CPA firms organised as legal persons to take out practice liability insurance, while such insurance remains optional for individual and joint CPA firms. The FSC has the power to suspend all or part of an accounting corporation’s business for up to six months or revoke the corporation’s license if its practice insurance does not meet the minimum requirements.
In terms of compensation for damages due to CPA negligence in cases other than attestation work for a public company, the limit shall be ten times the total amount of fees received from the same designated person, appointed person or person under investigation in the year in question.
The revised law imposes heavier penalties upon those who provide CPA services without obtaining a CPA certificate and those who lend out their certificates for use by unlicensed parties. Violators could be sentenced to five years in prison and/or be fined between TWD600,000 ($19,449) and TWD3 million. This change has been adopted to enhance the social image of CPAs.
The revised law maintains an accountant’s right to refuse to endorse a client’s financial reports if the latter is known to have concealed or refused to provide the necessary financial information. The law now makes it compulsory for CPAs to report to the client’s board of directors or supervisors as well as to the FSC for financial statements of listed companies that they refuse to verify, noting that such statements are usually extraordinary in nature or irregular and could have much bearing on the investing public’s interests.
Strengthened oversight In addition, a provision was added stating that the FSC enjoys the authority to examine documents audited by an accountant if the commission has doubts regarding the finances of any person or any company endorsed by the accountant. Likewise, the amendment also empowers the FSC to send officials to examine any accounting firms’ business or their financial situation.
Corporate governance and financial transparency are important issues in Taiwan and the revised CPA law aims to ensure that auditors play their role in preventing fraud following earlier corporate scandals, such as the collapse of hardware manufacturer Procomp Informatics in 2005.
To ‘promote quality of service’, the revised law requires CPAs to engage in continuous professional development and training as regulated by the National Federation of CPA Associations (NFCPAA). The FSC can suspend business operations at firms that fail to observe the professional training requirement and those who are unable to meet the regulation within one year following the suspension may have their certificates revoked.
The law includes measures to enhance the fairness of disciplinary sanctions for CPAs. Revisions have been made regarding what constitutes negligence on the part of CPAs when auditing and certifying financial reports. It is now expressly provided that representatives from industry, government and academia should each account for one-third of the CPA Discipline Committee.
Removing duplication While maintaining the current organisation of Taiwan’s various CPA associations, the revised law requires the integration of many of the functional committees that are now duplicated under the Taiwan Provincial CPA Association, the Taipei City CPA Association and the Kaohsiung City CPA Association, as well as the NFCPAA. Committees in charge of matters that are national in scope will now be unified under the NFCPAA.
In addition, the NFCPAA will also set up a new professional liability assessment committee. This functional division of labour and mutual support among the regional associations and NFCPAA will enable them to operate more efficiently and fulfil their self-regulatory function more effectively.
Furthermore, the revised law gives CPA associations the freedom to decide service charges but stipulates that when deciding the charges they should take into consideration the labour, time and risk involved.
Overall, the revised CPA law is expected to encourage a change in the profession’s structure, whereby a greater number of smaller firms are likely to be subsumed by larger groups. That’s because the bigger accounting firms can handle the higher liability risk. Big Four firms audit more than 80 percent of Taiwan’s publicly listed companies, according to NFCPAA, and the remaining companies are clients of medium-sized firms. Sole proprietor practices provide accountancy services for the estimated 1 million SMEs in Taiwan. By comparison, there are fewer than 3,000 publicly listed companies in Taiwan. Consolidation beckons.